Doubt over OPEC out­put deal keeps oil price view in check

Reser­va­tions over the abil­ity of the world’s largest oil pro­duc­ers to reach a bind­ing agree­ment to limit out­put has prompted an­a­lysts to leave their price out­look broadly un­changed, a Reuters poll showed yes­ter­day.

The 35 an­a­lysts and econ­o­mists polled by Reuters fore­cast Brent crude fu­tures will av­er­age $44.78 a bar­rel in 2016 and $57.08 in 2017, com­pared to the $44.74 a bar­rel and $57.28 out­look for the same pe­ri­ods in the pre­vi­ous month’s sur­vey. Brent has av­er­aged $43.93 per bar­rel so far this year.

The Or­ga­ni­za­tion of the Pe­tro­leum Ex­port­ing Coun­tries, which had agreed to re­duce out­put to a range of 32.5-33.0 mil­lion bar­rels per day in Al­giers last month, is ex­pected to work out the details on in­di­vid­ual cuts in its for­mal meet­ing in Novem­ber.

How­ever, with Iraq join­ing Iran, Libya and Nige­ria in seek­ing an ex­emp­tion from cut­ting out­put, an­a­lysts are skep­ti­cal the var­i­ous OPEC mem­bers can reach a con­sen­sus. “New puzzle pieces are be­ing re­vealed at ev­ery turn, punc­tur­ing the well-crafted im­pres­sion of a uni­fied OPEC car­tel,” OCBC Bank an­a­lyst Barnabas Gan said in a note. Iraq has asked to be ex­cused from OPEC crude out­put re­stric­tions say­ing it needs the in­come to com­bat Is­lamic State. Iran, Libya and Nige­ria, whose out­put has been hit by sanc­tions or con­flict, too have sought ex­emp­tion from the cuts.

“The ex­clu­sion of key na­tions as well as the neg­a­tive sen­ti­ment on the deal from the Iraqis both re­in­force the idea that a true shift in the phys­i­cal mar­ket is not likely,” said Jef­frey Quigley, Di­rec­tor, En­ergy Mar­kets, at Stratas Ad­vi­sors. While there is a strong pos­si­bil­ity of top pro­ducer Rus­sia agree­ing to freeze out­put at cur­rent peak lev­els, other non-OPEC pro­duc­ers were un­likely to join the ef­fort and may even end up in­creas­ing pro­duc­tion, an­a­lysts said.

Should the deal fail to ma­te­ri­al­ize, an­a­lysts an­tic­i­pate a sharp sell-off that could drag prices to­wards $40 a bar­rel, and for the ex­ist­ing sup­ply glut to last un­til at least mid-2017. “Cur­rently, our main con­cerns are the very high level of spec­u­la­tive po­si­tions (net long non-com­mer­cial po­si­tions) and a stronger US dol­lar, as these could fuel a sell-off in the event of de­te­ri­o­rat­ing fun­da­men­tals or dis­ap­point­ments from the OPEC meet­ing,” said In­tesa SanPaolo an­a­lyst Daniela Corsini. A pos­si­ble in­ter­est rate hike by the US Fed­eral Re­serve, a soft­en­ing Chi­nese econ­omy and eas­ing of geo-po­lit­i­cal con­cerns in coun­tries such as Libya and Nige­ria may fur­ther dampen a re­cov­ery in oil prices, the poll showed. The poll fore­cast US light crude will av­er­age $43.46 a bar­rel in 2016 and $55.22 in 2017. WTI has av­er­aged $42.31 so far in 2016.

Oil prices slid yes­ter­day af­ter nonOPEC pro­duc­ers made no spe­cific com­mit­ment to join OPEC in lim­it­ing oil out­put lev­els to prop up prices, sug­gest­ing they want the oil pro­duc­ing group to solve its dif­fer­ences first. Of­fi­cials and ex­perts from OPEC coun­tries and nonOPEC na­tions in­clud­ing Azer­bai­jan, Brazil, Kaza­khstan, Mex­ico, Oman and Rus­sia met for con­sul­ta­tions in Vi­enna on Satur­day and only agreed to meet again in Novem­ber be­fore a sched­uled reg­u­lar OPEC meet­ing on Nov. 30, they said in a state­ment.

London Brent crude for De­cem­ber de­liv­ery was down 38 cents at $49.33 a bar­rel by 1047 GMT af­ter set­tling down 76 cents on Fri­day. US WTI crude for De­cem­ber de­liv­ery was trad­ing down 30 cents, or 0.6 per­cent, at $48.40 a bar­rel, af­ter clos­ing down $1.02 on Fri­day. — Reuters